What Is The Ideal Size Of A Board Of Directors?

Last week's article generated some questions directed at me. Mr. Leonard Khafafa, an astute businessman and board member somewhere, was keen to know about the size and functions of the board. We shall discuss them here.

We have what we call a board of advisors and a board of directors.

Advisors serve without fiduciary duty. Fiduciary duty combines the duty of loyalty and duty of care towards all stakeholders.

We have those who are serving as board directors but with the mindset of simple advisors. What readers want are those that serve in the board of directors.

The Enron story is now a classic case study world over on how not to run a board. Management overpowered the board and let the board play second fiddle on matters touching on invested public money. At the end of it all, a suicide to escape shame and time in jail marked the end of a long scheme to deceive the public and the authorities.

To avoid the massive influence of an overbearing figure on the board, most corporate organisations have seven or more directors besides the Chairman and Executive management. Normally an overbearing person has something to hide.

The presence of independent directors makes for sound decision making because such directors bear no allegiance to board member interests but all stakeholders.

Smaller organisations have as few as two and can grow it to five or more.

For the board to function well, it must have committees and most times three. For instance, the Finance and business committee focuses on business growth and financial management. The Human resources committee focuses on staff issues including compensation and disciplinary matters. The Audit and Risk committee focuses on adherence to statutory compliance and internal systems and processes.

These three committees will have a chairman and two other members other than from the executive management. It will be cumbersome for board members to serve in all three committees and still attend the full board meetings. So in this case, about 7 to 9 directors would be ideal, budgets allowing.

It is best if members serve in two out of the three committees so that when a reshuffle is necessitated, there is continuity in institutional memory.

Can I pack my company with family members because I trust them?

This is perfectly in order so long as the individuals in the business are competent or are trained well enough for their roles. There are several successfully run family businesses. I will not dissuade those that correctly apply proper policies.

However, if the family members are not adding value, the board must be independent enough to point this out. Conformist members are there for the allowances and the prestige accruing from such appointments.

A proper board charter will always spell out the duties and responsibilities of the board and its committees. Every committee will have spelt out terms of reference and frequency of meetings. And because they are highly knowledgeable, they aren't expected to hang around as frequently as the management. They delegate their authority and give them the space to work. They are however crucial in the strategic planning process and will retreat with management when that time comes.

Can you tell if individual members are effective?

Yes, you first look at the attendance. Most boards have a maximum number of meetings that a member may skip in a year. This is considered during the board evaluation.

Board members have a time when they evaluate each other. A standard form helps them to focus on every member's competencies and contributions. At the end of it, feedback is provided and these may affect term renewals when they fall due.

Are there times when the board sharpens the saw?

This is absolutely essential and more so, at this time of the transitions brought about by technology and accelerants such as covid-19.

Ordinarily, boards got training sessions as a group or through open learning programs for specific directors needing support. In the present situation, new skills are required of directors if they must be effective in the new dispensation. They have had to learn to attend meetings virtually and provide required support for organisations with leaner structures.

As is now practice the world over, continuous training is necessary because the knowledge halflife is much shorter now. What kept you competitive two years ago is no longer as useful now and newer knowledge is required to maintain your competitive edge.

What should be done to a none responsive director?

When the weakest link is identified, and remedial action is unsuccessful, it is best to cut your losses and replace that director with one that lives up to the role. The presence of a nonperformer on the board may encourage a level of complacency because everyone else knows that even with their stepped down gears, they are still better than the worst of them. When all are working hard, the organisation thrives.

How do you deal with those who have overstayed or outlived their usefulness on the board?

It is important to introduce clear term limits. The classic case study of a man named Robert Winship Woodruff who served as board chairman from 1923 to 1954 comes to mind. An unprecedented 31 years and even during the times that he was sick, he still chaired board meetings. His dominance at some point was counterproductive. Fortunately, that is now in the past. Today, you must adhere to term limits.

What do you do to the roving eye type?

Board members must never mix business and pleasure on account of staff members unless of course they are married to them.

Board-staff affairs erode proper management authority in the workplace. Whenever these incidences are observed, the board member ought to exit. There are complex situations where such things were going on long before the board member or staffer joined the organisation. In open societies, declarations of continuing interest are registered at the outset and thereafter it makes no big news and especially if no one else is involved with them at the family level. They are to be discouraged at all costs including having the directors signing to a code of conduct.